Is the United States Still the Leading Economic Super-Power?
Over the weekend of April 15th, the G-20 finance ministers and central bank governors, comprised of some, but not all, of the 20 largest developed economies, met in Washington D.C. This was a continuation of the dialogue which was promulgated by the G-20 document of April 2009 namely: Declaration on Strengthening the Financial System. The Declaration vested “enhanced capacity” to the former Financial Stability Forum–now re-named the Financial Stability Board (FSB). For clarification, the FSB is a group which is housed and is functionally a part of the Bank for International Settlements (BIS), in Basel, Switzerland. The BIS acts as the central bank for other sovereign central banks, such as the Federal Reserve System, Bank of England, Bank of Japan, Bank of China, Reserve Bank of India, etc. The BIS currently has fifty three central bank members, comprising the vast majority of global economic activity. The Declaration also appointed the IMF with an enhanced role in the arena of financial and regulatory monitoring. Additionally, a G-20 Communiqué was issued after the meeting. *
According to Euro News, one of the stated intentions was expressed as:
“… to avoid a repeat of the global financial crisis the G20 nations have decided to put the policies of seven of its members, the US, China, Britain, Germany, France, India and Japan under the microscope. The IMF will seek out imbalances in debt, trade, and budget deficits, although its conclusions will not be binding on members.”
“The guidelines operate a little bit like a net which actually holds those of the countries that violate or do not respect the guidelines and the net is a little bit tighter for those countries that are considered of systemic importance because they represent more than five percent of the GDP of the G20”, said French Finance Minister Christine Lagarde.
This regime or set-up raises questions here in the U.S. Question one: Why are these particular entities, the BIS and FSB (which are made up of central bank representatives) being vested with so much latitude and altitude (respect of position) —when the central banks themselves exist to be of service to their States of origin? Additionally, the central banks in many cases are owned by their private commercial banking members. Question two: Although the IMF is performing better work than it did in the past (even though that past is quite checkered), is it really an organization in which we want to abdicate our faith to in terms of monitoring our own economy or in their parlance, “put… under the microscope”–so as to be judged?
We see that the conclusions won’t be binding. However, look at Minister Lagarde’s language above, “…the net is a little bit tighter…” Is that the non-binding net for “violators” and “disrespectful” miscreants? Would there be embarrassment or moral suasion (persuasion and pressure) for non-compliance? What influence will this have on buyers of sovereign debt or sovereign trade agreements? How does this affect the dollar as a reserve currency? How will the Rating Agencies react to these analyses since they have had very little a priori vision (ability to analyze beforehand) in the past? There are other potentially serious unintended consequences.
Why is this happening? It appears that we did not fill the void proactively when the crisis occurred—to correct earlier legislation, propose effective regulation and internal surveillance.. And so in the final analysis, Westphalian principles (of sovereignty) are being bypassed by international entities and coalitions without the approval of the United States Congress. It’s an interesting system being put into place which has the force of a treaty, and yet is arranged to not necessarily need ratification. I guess we could throw in the towel and declare our ascendancy (primary influence) as a country officially ended. As Shakespeare would have said, “We did to our own selves.”
What possible perspective should or could we take?
Let’s review the actual position of the U.S. in relation to the rest of the world; and fashion a Prognosis for U.S. Full Faith and Credit.
The United States is very well established, with its Constitution, its freedoms, its magnitude and its capacity for production. It acts as a beacon to individuals throughout the world. It houses approximately 4.5 percent of the world’s population and yet is responsible for 25 percent of the world’s output or production. GDP per capita is another U.S. statistic that resides in a high range relative to the rest of the world.
To add some perspective, let’s take a look at the listing of global GDP and population for 2009:
- United States— $14.25 trillion; 313 million
- Japan— $5.1 trillion; 127 million
- PR China— $4.9; trillion 1.4 billion
- Germany— $3.3 trillion; 81 million
- France— $2.7 trillion; 65 million
- UK— $2.2 trillion; 62 million
- Italy— $2.1 trillion; 60 million
- Brazil— $1.6 trillion; 193 million
- Spain— $1.5 trillion; 47 million
- Canada— $1.3 trillion; 34 million
- India— $1.2 trillion; 1.2 billion
- Russia— $1.2 trillion; 142 million
- Saudi Arabia— $360 billion; 26 million
- Iran— $330 billion; 79 million
These numbers indicate that the United States and its citizenry have a very high capacity to monetize resources, both as hard assets and as human innovation, production, and technology. Truth is that we maintain our position even with weaknesses in our employment and banking sectors. So the question becomes, what is the prognosis?
The balance sheet of the United States is not in the news very often. However, in a fiat monetary system, which we have, wouldn’t this be the central part of the ‘‘full faith and credit’’ that backs our currency? The value of our public and private assets is truly a staggering amount. The public assets alone have an estimated value of some $500 trillion, including land holdings, mineral rights, real estate, equipment assets, etc. Quite simply stated, we are not bankrupt by any stretch of the imagination.
So from one perspective, what we have as a country is a cash flow problem. Assets could be monetized. Treasury and the Fed could get creative with the inter-play between assets and the national debt. The structural deficits (primarily entitlements) need re-thinking accompanied by good planning. GDP and employment need attribution analyses to provide for immediate growth and employment. ** Regulation needs to be pursued in a logical and coordinated manner. The timeline leading up to the crisis marks a clear and lucid set of events which can be defined and remedied here at home.
It would certainly be auspicious for the stewards of our economy to create a point of control to analyze and coordinate workable solutions. If this can be done in a timely manner, with creativity and certainty, the prognosis can still be good.
Caution: The United State needs to know thyself again. We need to develop the political will to recognize what ends our mission serves. Until this happens, we continue to risk floundering adrift in a sea of uncertainty.
*Communiqué: Meeting of Finance Ministers and Central Bank Governors, Washington DC, 14-15 April 2011 http://www.g20.org/Documents2011/04/G20%20Washington%2014-15%20April%202011%20-%20final%20communique.pdf
**Attribution Analysis—analyzing the attributes of a particular endeavor to determine what actions or properties contribute to or detract from stated objectives.
